U.K. stocks turned lower Tuesday, clipped as the pound hit a three-week high and as investors wrestled with a downbeat report on British services activity and lingering tensions surrounding North Korea’s nuclear program.

The FTSE 100
UKX, +0.03%
fell 0.5% to close at 7,372.92, with only the oil and gas and utilities sectors showing gains. The index had been higher early in the session as shares of miners and retailers rose.

Russian President Vladimir Putin on Tuesday warned Pyongyang’s weapons program could develop into a “global, planetary catastrophe” while North Korean officials reportedly said the country is prepared to send more “gift packages” to the U.S. to defend itself.

“The expectation that a diplomatic solution will not be found in the near-term is likely to result in underlying caution remaining for now,” wrote Craig Erlam, senior market analyst with Oanda. “With more flare-ups likely, I expect we’ll see repeated episodes of safe-haven flows, which should mean gold, the Swiss franc and the yen (barring any attack on Japan) remain well supported.”

Flight-to-safety moves stemming from worries about North Korea have come at the expense of global equities in recent weeks.

Putting pressure on U.K. equities Tuesday was strength in the pound as the dollar pulled back on concerns about North Korea. The greenback was also hurt after a slump in July factory orders and as Federal Reserve Governor Lael Brainard said the Fed may have to slow down the pace of interest-rate increases in light of lackluster inflation levels.

The pound
GBPUSD, +0.0310%
jumped to $1.3020, marking the first time the pound traded above $1.30 since Aug. 14, according to FactSet Data. Sterling traded at $1.2932 late Monday in New York. A strong pound can hurt revenue and earnings made overseas by U.K.-listed multinational companies.

Bank stocks fell on the prospect for a lower-for-longer scenario in interest rates. Many U.K. banks have operations in the U.S., and higher interest rates can help boost net interest margin for lenders. Shares of HSBC Holdings PLC
HSBA, -0.28%HSBC, +1.04%0005, +0.00%
fell 1.5% and Barclays PLC
BARC, -0.54%BCS, +2.39%
gave up 1.2%.

The pound had slipped earlier Tuesday after data showed activity in the U.K. services sector hit an 11-month low in August. IHS Markit/CIPS said its services PMI came in a 53.2, and expectations were for 53.5 in a FactSet survey of analysts.

Retailers: Shares of retail companies rose after a British Retail Consortium/KPMG survey showed retail sales rose 1.9% on like-for-like basis in August on a year-over-year basis. Total sales increased 2.4% year-on-year.

Admiral Group PLC shares
ADM, +0.48%
fell 1.5% after a ratings downgrade of the insurer to sell from hold at Berenberg. “Although Admiral’s [first half] 2017 results were in line with consensus, we thought the results highlighted some concerning trends for earnings,” said Berenberg analyst Iain Pearce.

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